TARIFF EQUIVALENT AND FORGONE TRADE EFFECTS OF PROHIBITIVE TECHNICAL BARRIERS TO TRADE CHENGYAN YUE AND JOHN C. BEGHIN We derive a method to econometrically estimate the tariff equivalent and forgone trade effects of a prohibitive technical barrier to trade (TBT) based on Wales and Woodland’s Kuhn–Tuckerapproach to corner solutions in consumer choice. The method es the lack of observed data on bilateral trade flows and accounts for differentiated goods by place of origin. We apply the derived random utility model to international trade in apples to identify the tariff equivalent of prohibitive phytosanitary barriers imposed by Australia on potential imports of New Zealand apples. We estimate the forgone apple trade between the two countries, the implied trade injury imposed by Australia on New Zealand, and the welfare loss to Australia. The removal of the Australian policy would welfare gains around US$50 million annually for Australia. Key words: corner solution, Kuhn–Tucker model, New Zealand apples, phytosanitary, prohibitive barrier, technical barrier to trade. Many countries implement drastic measures to the possibility of a disease or pest transmis- restrict trade in a product associated with a sion is very low or threat to food safety is perceived or actual risk of transferring a pest negligible, these trade impediments cause wel- or disease into their geography. These occur- fare losses for importing countries and mer- rences of nontariff trade barriers for human cantilist losses (“injury” in WTO language) for or plant health have increased as tariffs have exporting countries due to reduced exports. been falling worldwide (Beghin 2008). Trade These strict production, storage, and inspec- agreements recognize countries’ right to set tion requirements induce a higher unit cost, their own standards and regulations on trade and higher price of the imported goods, and in in order to protect human, animal, or plant some extreme